"Now a securities+crypto stock"…Robinhood up 254% this year [Hot Pick! Overseas Stocks]

From meme stock to mainstream financial stock

Expectations for tokenized securities and stablecoin business

'Money Tree Sister' Cathie Wood also bought

Once the 'one-pick' for U.S. retail investors, U.S. stock trading app company Robinhood's share price has surged again recently. The rise in growth expectations appears linked to its expansion of digital asset businesses from cryptocurrencies to tokenized securities and stablecoins. ARK Invest, led by Cathie Wood, has also significantly increased its stake in the stock.

Up 11% over 4 years and 5 months… but 250% 'surge' this year

On the U.S. Nasdaq, Robinhood's stock has jumped 254% year-to-date. From the 2nd to the 24th of last month alone, the rise was 38.63%. This far outpaces the Nasdaq index's gain of 9.05% over the same period.

Robinhood's stock has surged this year. Since its IPO on the Nasdaq in July 2021, the increase through the end of December last year was only 11% over about 4 years and 5 months, which is the complete opposite.

The company, which markets itself as a commission-free mobile brokerage platform, saw its stock plunge 75% in the year after listing through July 2022.

During the COVID-19 period, the meme stock investment craze, including GameStop, drew large numbers of young investors to the platform, earning it evaluations as a next-generation financial platform. But it became known merely as a free stock trading app and later failed to deliver results commensurate with market expectations.

'Plus alpha' from a buoyant market… expansion of crypto business

Securities firms say Robinhood's recent share price rise reflects both its core securities trading business and various new businesses pulling together. First, global equity markets, including the U.S., have risen sharply, increasing the number of equity investors.

The number of customers who have deposited funds with Robinhood grew from 23.2 million in Q2 2023 to 26.5 million in the last quarter. Over the same period, assets under management through Robinhood expanded from US$89 billion to US$279 billion, more than tripling.

Paid subscription users have increased, improving profitability. The number of Gold members, who can access Robinhood's research report viewing service and advanced portfolio analysis, was 3.48 million in the last quarter, a 75.7% jump year-on-year.

Expanding into brokerage for other asset classes beyond stocks is also a reason for the growing user base. Earlier this year, Robinhood launched index options and futures trading services.

The cryptocurrency trading service, started in December 2023, is also rapidly expanding. In May it acquired Canadian crypto platform WonderFi, and in June it acquired Europe's largest crypto platform Bitstamp. The number of cryptocurrencies supported for trading is steadily increasing. According to Robinhood, US$28.3 billion worth of cryptocurrency was traded through Robinhood in the second quarter alone, a 24% increase year-on-year.

Seung-hwan Choi, a researcher at Shinhan Investment Corp., said, "With global equity markets buoyant, the number of investors trading stocks through Robinhood and the assets they trade are increasing, creating a virtuous cycle that raises average revenue per user (ARPU). In addition, expectations are high for initiatives that connect traditional finance and crypto, such as the cryptocurrency new business."

Expanding into tokenized securities and stablecoins

In the European market, it began trading tokenized securities (ST). In the relatively less-regulated European market, it intermediates investment trading by tokenizing U.S. stocks and ETFs. Investors can split and invest in tokenized forms of major U.S.-listed stocks as well as private shares of unlisted companies such as OpenAI and SpaceX. As of mid-month, the number of assets Robinhood has tokenized is about 490, with a total asset value of US$8.5 million.

It is also closely connected to Circle's stablecoin (USDC) ecosystem. Through its proprietary crypto wallet, Robinhood Wallet, it supports buying, selling, and custody of USDC as well as Bitcoin and Ethereum. When an investor trades with a market maker partnered with Robinhood, the investor is not charged a fee; instead, Robinhood receives a rebate from the market maker that quotes prices. When an investor trades USDC on a real-time quote basis, the investor is charged roughly a 0.83% fee.

In August, Robinhood launched a sports prediction market service in partnership with prediction market platform Kalshi. It is a service where users can buy 'prediction contracts' to bet on outcomes of the NFL and college football leagues. With a high proportion of retail investors, the firm appears to be expanding services across a range of investment products.

Aggressive expansion amid overvaluation debate… 'Money Tree' bets

However, some argue that expectations for new businesses have been priced into the stock too quickly. As of the 24th, Robinhood's price-to-earnings ratio (PER) stood at 71. Return on invested capital (ROIC) is said to be below the weighted average cost of capital (WACC), indicating relatively low capital efficiency.

Wall Street views are mixed. Morgan Stanley on the 1st set a target price of US$146 and issued a 'hold' rating. Citigroup at the end of last month suggested US$135 as appropriate and issued a 'hold' rating. Conversely, Bank of America on the 2nd issued a 'strong buy' with a potential upside to US$157.

Recent insider sales have also fueled 'peak' concerns. On the 21st, Robinhood co-founder Baiju Bhatt sold 418,338 shares in a single day, cashing out about US$55.7 million. The sale price ranged from US$131 to US$135 per share, below the closing price on the 24th (US$139.79).

There are institutional investors betting on Robinhood's rise. On the 23rd, ARK Invest, led by the well-known investor Cathie Wood, made large purchases of Robinhood shares.

ARK Invest added a total of 167,489 Robinhood shares across its exchange-traded funds 'ARK Innovation ETF (ARKK)' and 'ARK Next Generation Internet ETF (ARKW)'. The purchases totaled about US$21.3 million (about KRW 30.5 billion).

Seon Han-gyeol, Reporter always@hankyung.com